Almost 2 Of 5 Contacted About Overdue Debt

Have you missed enough credit card payments that your creditor has contacted you about your debt? If so, you aren’t alone.

According to survey results from the February 2019 PYMNTS.com Financial Invisibles Report, almost two in five (36.3%) respondents had been contacted by a creditor regarding an outstanding debt.

How did many of them resolve the situation? More credit. In the middle of 2018, the use of credit cards to pay off outstanding debts jumped substantially – from 44.6% in the second quarter to 61.8% in the third quarter.

By shuffling outstanding debt toward credit cards, consumers are using up more of their available credit – potentially dropping credit scores in the process and increasing the chances of higher interest charges and missed payments. If you couldn’t pay off your debts in full this month, what’s going to change to help you pay them off next month?

The New York Federal Reserve’s latest Quarterly Report on Household Debt and Credit shows that credit card delinquencies have been on the rise since the middle of 2016 – both the thirty-day delinquency (a single missed payment) and the more serious ninety-day delinquency. The transition rate is just over 6% for thirty-day delinquency and just under 5% for ninety-day delinquency.

Consumers realize they are living on the financial edge. Even though half of consumers who paid an outstanding debt with a credit product were no longer delinquent, 22.7% were concerned about future delinquency within the next few months. They know that by continuing to rely on credit every month, they are one financial slip away from another delinquency.

Is more income the solution? Other PYMNTS.com survey results suggest not. Consumers reported living paycheck to paycheck at all income levels, even at incomes above $150,000.

Over half (51.8%) of those living paycheck to paycheck said the reason was to cover basic bills, with a surprising consistency across all income groups. Another 25% cited unnecessary spending, with a much higher proportion at the upper end of the income scale.

It’s basic human nature. You make more, so you think you can spend more and your baseline spending increases. Your definition of necessary purchases may change. You don’t worry about how much you spend because you’re sure that you have sufficient funds – so you don’t bother keeping track of spending anymore.

That’s a recipe for disaster – and increased delinquencies. The survey found a surprising number of wealthier Americans relying on last resort methods like payday loans, and even being rejected for those loans because their debts were clearly out of control.

The real solution to excessive credit is spending control – and that starts with a budget.

There’s no shame in having a delinquency on your credit card – but there are consequences. Your credit score will take a hit for a long time, as missed payments are the single most important factor in calculating credit scores. You’ll probably pay higher interest rates for some time and may be rejected for certain types of loans. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

Learn from your mistakes. Set a realistic budget that allows for savings. You have to spend less than you bring in most of the time. Whenever possible, limit charges to what you can afford to pay off at the end of the month.

Over time, you’ll build an emergency fund that allows you to handle unplanned expenses – and avoid excessive credit and the risk of another delinquency. Even better, you’ll never have to field another phone call questioning why you haven’t paid your outstanding balances.